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Why this Stimulus Sucks

Steal from the Poor, Give to the Rich

In my post yesterday I explained that the real problem in economics today is that governments have been convinced that the health of the economy should be measured primarily by whether or not corporations and the rich are doing well. Why does this matter?

This illustration, originally appearing as an accompaniment to Matt Taibbi’s excoriating piece† on just where Federal stimulus funds were directed, gets to the heart of the matter:

The Fed sent billions in bailout aid to banks in places like Mexico, Bahrain and Bavaria, billions more to a spate of Japanese car companies, more than $2 trillion in loans each to Citigroup and Morgan Stanley, and billions more to a string of lesser millionaires and billionaires with Cayman Islands addresses. “Our jaws are literally dropping as we’re reading this,” says Warren Gunnels, an aide to Sen. Bernie Sanders of Vermont. “Every one of these transactions is outrageous.”

Most absurd of all, of course, was the decision to direct $200 million of Federal stimulus funds to the wives of Morgan Stanley executives John Mack and Peter Karches. Taibbi writes:

Neither woman appears to have any serious history in business, apart from a few philanthropic experiences. Yet the Federal Reserve handed them both low-interest loans of nearly a quarter of a billion dollars through a complicated bailout program that virtually guaranteed them millions in risk-free income.

The problem that we are looking at is the same anomaly that leaves us with an economy where corporate profits soar while employment dwindles. In “giving already stinking rich people gobs of money for no fucking reason at all” (as Taibbi colourfully puts it) policy-makers are maintaining the delusional belief that funnelling huge amounts of cash into large corporations, many of whom have already made huge misjudgments and mistakes, can enrich and employ middle class communities and individuals. It doesn’t. The money just goes off into the international financial system, and into exotic financial instruments such as credit derivatives, creating further abstract financial wealth. The fact that future generations will have to pay for this perverse generosity to the wealthy rubs salt in the wound. And it is a wound: the young and the disenfranchised are increasingly unemployed, underemployed and impoverished.

Expecting those few who can get jobs to be taxed to fund the extravagances of the Morgan Stanley class is theft.

But didn’t Stimulus save the World?

“We would be in a depression if we didn’t bail out the banks, and have quantitative easing!” wails the voice of Wall Street. Sure, the government can stimulate the economy. There are many plausible ways to do it: building things that people need, employing people who need employment, creating useful infrastructure and so forth. But what if huge chunks of the money go not to creating infrastructure and employment, but to fatten the pockets of the rich? What if rising food prices and energy prices are partly a result of stimulus money being used in speculation? What if this stimulus has been a heist for the corporate class?

Here’s industrial production:

And here’s Employment:

Now here’s Corporate Profits:

And finally GDP:

In terms of the real, physical, reality-based economy (employment and industry) we are in a depression. The stimulus packages merely obscured that fact for a while by temporarily pumping up markets and spending. Now, as growth slows and markets jitter, underlying structural problems come back to bite ― poor infrastructure, unfair access to capital, high levels of personal and institutional debt and leverage, high levels of government debt, low social mobility, the collapse of manufacturing.

In my next post in this series, I will talk about types of stimulus that don’t suck.

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